CHAPTER 6
Review of Intermarket Principles

INTRODUCTION

We have ended our coverage of the 1990s. But before examining the more difficult years after 2000, let us pause long enough to review just what intermarket analysis is. How does it add to traditional technical analysis? What are its applications to other areas of study including asset allocation, sector rotation, and even economic forecasting? It is also a good time to explain why technical analysis lends itself so well to this form of analysis, which requires the study of so many markets. This chapter also restates the basic principles on which intermarket analysis is based.

AN EVOLUTIONARY STEP IN TECHNICAL ANALYSIS

Over the past century, technical analysis was based primarily on single market analysis. This meant, for example, that stock market analysts looked only at stock market charts. Bond, commodity, and currency chartists looked only at charts of the market in which they were trading. Over the past decade, however, emphasis in the technical world has shifted away from single market work to a more intermarket approach. It is not unusual for technical analysts to supplement their stock market analysis with consideration of currency trends (to see where global money is flowing), commodity prices (to gauge inflationary trends), bond charts (to see which way interest rates are moving), and overseas markets (to measure the impact of global market trends). Those who fail to do so run the risk of seeing only a small ...

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